Australia | Apr 11 2007
By Greg Peel
Viridis Clean Energy Group (VIR) is a form of infrastructure fund that invests in clean energy assets across the globe and delivers a cash distribution to its own investors as well as prospects for longer term growth.
The principal investment focus is on assets that generate electricity or other consumable energy produced from renewable, waste or inherently low emission energy sources, including wind, hydro, biomass, geothermal, solar, waste fuel, coal seam methane and natural gas. Only proven technologies are considered.
Viridis investments are mostly through equity, but debt and hybrid instruments that satisfy a prescribed risk/return ratio also make up part of the portfolio. The fund currently has a portfolio of investments comprising wind power generation facilities in the UK and Germany, landfill gas power facilities in the US and debt interests in hydro and co-generation facilities in Italy.
Since listing in September 2005, Viridis has provided around an 8% unfranked yield but failed to make an impact on the valuation front. Having spent some time below the $1 mark, the fund returned to recognition earlier this year when the federal government began spouting about a national carbon credit scheme. It closed yesterday at $1.04.
The fund is not widely covered by brokers, but Austock has today decided to increase its target price based on the experience of similar fund Babcock & Brown Wind Partners (BBW).
Global banks have to date been wary of the new-fangled renewable energy market, and as such have tended to impose demanding debt amortisation requirements on such ventures which in turn undermines cashflows.
However, BBW has just announced that it has mandated banks to underwrite a global financing facility. This represents a “significant development for the renewable energy market”, says Austock, as it indicates banks are now ready to feel comfortable with the sector and are prepared to ease back on the previously restrictive requirements.
Austock believes that given Viridis’ German and UK assets have current debt facilities that result in significant debt reduction in the medium term, significant cashflow upside exists via a potential debt restructuring that better recognises these long asset lives.
In a nutshell, debt restructuring could boost distribution growth and acquisition capacity.
To that end, Austock has lifted its 12-month target price from $1.12 to $1.24. The analysts rate the stock a Buy.
The only broker in the FNArena database to cover Viridis is ABN Amro. ABN has been quiet since the February result when the analysts lifted the target from $1.10 to $1.14 and retained a Buy rating.